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+300 Part Ill: Put Option Strategies 
+takes a nasty fall, and (2) collateral requirements are small, so it is possible to utilize 
+a great deal of leverage. It may seem like a good idea to write out-of-the-money puts 
+on "quality" stocks that you "wouldn't mind owning." However, any stock is subject 
+to a crushing decline. In almost any year there are serious declines in one or more of 
+the largest stocks in America (IBM in 1991, Procter and Gamble in 1999, and Xerox 
+in 1999, just to name a few). If one happens to be short puts on such stocks - and 
+worse yet, ifhe happens to have overextended himself because he had the initial mar­
+gin required to sell a great deal of puts - then he could actually be wiped out on such 
+a decline. Therefore, do not leverage your account heavily in the naked put strategy, 
+regardless of the "quality" of the underlying stock. 
+THE COVERED PUT SALE 
+By definition, a put sale is covered only if the investor also owns a corresponding put 
+with striking price equal to or greater than the strike of the written put. This is a 
+spread. However,formargin purposes, one is covered ifhe sells a put and is also short 
+the underlying stock. The margin required is strictly that for the short sale of the 
+stock; there is none required for the short put. This creates a position with limited 
+profit potential that is obtained if the underlying stock is anywhere below the strik­
+ing price of the put at expiration. There is unlimited upside risk, since if the under­
+lying stock rises, the short sale of stock will accrue losses, while the profit from the 
+put sale is limited. This is really a position equivalent to a naked call write, except that 
+the covered put writer must pay out the dividend on the underlying stock, if one 
+exists. The naked sale of a call also has an advantage over this strategy in that com­
+mission costs are considerably smaller. In addition, the time value premium of a call 
+is generally higher than that of a put, so that the naked call writer is taking in more 
+time premium. The covered put sale is a little-used strategy that appears to be infe­
+rior to naked call writing. As a result, the strategy is not described more fully. 
+RATIO PUT WRITING 
+A ratio put write involves the short sale of the underlying stock plus the sale of 2 puts 
+for each 100 shares sold short. This strategy has a profit graph exactly like that of a 
+ratio call write, achieving its maximum profit at the striking price of the written 
+options, and having large potential losses if the underlying stock should move too far 
+in either direction. The ratio call write is a highly superior strategy, however, for the 
+reasons just outlined. The ratio call writer receives dividends while the ratio put